Increasing Cell Phone Stock Endangers Industrial Chain

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Last updated at: (Beijing Time) Monday, September 08, 2003

Increasing Cell Phone Stock Endangers Industrial Chain

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As stocks of mobile phones kept on increasing during the outbreak of the SARS epidemic, managerial personages in the mobile phone industry were on tenterhooks, riveting high attention on the development of the situation.

In early June analysts estimated that about 20 million mobile phones were stocked in domestic shops, warehouses and factories, an equivalent of regular sales for four months on markets. However, it is generally considered normal if the stock is equal to one or two months' sales, according to inside managerial personages.

Up to the second ten days of July sales of mobile phones had restored to the pre-SARS level. Nonetheless, analysts reckoned that there still existed a problem of overstocking.

As the largest market of mobile phones in the world, the stock situation in China is likely to set off a chain reaction in the whole chain of mobile phone industry, which includes mobile phone producers, WAP service providers, chip suppliers and mobile phone retailers.

A high side of stock level is extremely dangerous to the mobile phone industry. Like computers, mobile phones are tending towards fast devaluation due to the rapid renovation of chips and the software. The overstocking will compel producers and retailers to lower the prices of mobile phones, then a cut-down in profit margin. Besides, the overstocking also brings pressure to bear on major foreign producers such as Motorola and Nokia, for their mobile phones have to compete with those sold at a big-margin discount.

In the meanwhile, the overstocking will impel the domestic mobile phone producers to reduce outputs. Accordingly, mobile phone parts purchased from suppliers such as Texas Instruments and Analog Devices.

Rosemary Farrell, a senior market analyst of iSuppli Corporation, which offers professional surveys of the electronics marketplace, published a report last week by saying that communication chip suppliers always keep a low stock level. This analyst also predicted that it would take at least the rest of this year for China's mobile phone stocks to return to the normal level.

In order to relieve stocks in somewhat way, TCL Mobile Communication Co., Ltd., Nanjing Panda Electronics Co., Ltd. and other mobile phone producers have begun to reduce prices acknowledging the reality of a falling profit margin. Zhang Dongming, an analyst of BDA, the leading provider of market research for China's telecom sector, noted that some mobile phone producers have deferred putting out new products in an effort to give more time to retailers to sell stocks.

Mobile phone stock will possibly turn out a focus in this quarter's examination of mobile phone licenses conducted by the Ministry of Information Industry (MII). Analysts and managerial personages within the industry hold that the problem of mobile phone overstocking actually came to appear early before the outbreak of SARS, which partly resulted from too many domestic companies entering the mobile phone market. At present 25 domestic companies plus 12 multinationals are producing mobile phones in China. Related analyses also predicted that perhaps after this year's examination the MII would call off some licenses.

In addition to a clear idea of the gross number of mobile phones, another problem that needs to pay attention to is their destinations. According to Zhang Dongming, among the 82.2 million mobile phones produced in the first half of this year, 36.9 million were exported and sold on overseas markets, and 25 million consumed at the domestic market and so still a stock of 20 million.

A managerial personage of Motorola boasting the largest sales in China said that compared with the stock in June, they are now less worried. According to the company's spokesman, the company had decreased stocks of single-color display mobile phones by a big margin, since such low-end mobile phones are no longer popular and their value also shrinks greatly, the managerial echelon of Motorola noted at a company meeting in Beijing last week.

However, the spokesman of Nokia, the largest sales round the globe and the second in China, revealed that this company wouldn't make any comment on the stock level in a single country. Data provided by iSuppli show that taking the world as a whole, Nokia has a stock level equivalent to a sale of 27.1 days ahead of the whole wireless communications industry.

As for other companies, the problem of mobile phone overstocking appeared in their recent financial reports. Take Digital China Holdings Limited., a Hong Kong-listed retailer of computers and mobile phones, for instance. In order to solve the problem of overstocking, the company has sold 100,000 mobile phones at a greater discount than its counterparts.

TCL Mobile Communications also announced that its stocks had mounted from a level of 18-day sales a year ago to that of 33-day sales in June. But its managerial echelon still raised its annual output goal from 9 million to 9.5 million, indicating a better status of stocks than its rival.

Although China Putian Corporation is the most likely to have a large stock, its marketing manager Liu Wanrong declined any comment on the stock status. Instead, he noted that the problem of overstocking was not so serious as to threaten the survival of its related producers. Meantime, he also admitted that due to the unsatisfactory industrial situation, his corporation has postponed the original plan to list in Hong Kong and the US market this autumn.

By PD Online Staff Zhu Lizhen

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